Moratorium period: what it's all about

A moratorium period is a time during the loan term when the borrower is not required to make any repayment. It is a waiting period before which repayment by way of EMIs begins. Normally, the repayment begins after the loan is disbursed and the payments have to be made each month. However due to this moratorium period, the payment starts after some time. Education loans provide this feature. This is because education loans are repaid by the students after they start earning and build their finances. (Have you enjoyed the benefits of a moratorium period?) There might be a time lag between their completing studies and before getting a job. That is why a provision for moratorium period is made. The most important feature of education loans is the structure of repayments. You do not have to make any loan repayments until you complete your course. During the moratorium period, on an education loan the bank will calculate interest on your loan on simple interest basis. Interest calculations will start as and when amounts are disbursed to you and not on the entire loan amount at once. This interest will be accumulated until the end of the moratorium period. There are some banks that offer a concessional interest rate if you take the loan and arrange to pay the interest portion of the loan during the moratorium period. Taking a simple example, if a loan amount of Rs 1 lakh is released at the start and interest rate is 11% per annum, a total interest of Rs 11,000 per annum or Rs 33,000 for a three-year moratorium period will be accumulated. At the end of moratorium, Rs 1,33,000 will be the amount on the basis of which future interest and EMI will be calculated.